Farmers Fox Theory: Does a country's weak regulatory system benefit both the acquirer and the target firm? Evidence from Vodafone-Hutchison deal

Abstract

The extensive research on cross-border mergers and acquisitions performed in different institutional settings shows that legal and regulatory infrastructure, level of investor protection, and key macroeconomic factors are the most important determinants. With this in mind, we analyze and discuss the telecommunications market leader Vodafone's cross-border acquisition of Hutchison equity stake in CGP Investments, which had long-time delayed (litigated) in an Asian emerging market-India-in the view of corporate gains tax. Regarding theory testing and development, we test six theories propounded in management-related literature. Further, based on limitations of the existing theories we develop new theory-Farmers Fox Theory-and offer lawful propositions for future research that would advance the current international business and institutional knowledge. We therefore conclude that a given country's weak regulatory system benefits both the acquirer and the target firm; simultaneously, this behavior would adversely affect on economic/fiscal income of a nation.